Research On The Effects Of Personal Income Tax In Income Redistribution

With the rapid development of our country’s economy, the income gap has been expanding increasingly, which has aroused widespread concern. As a kind of taxation form which can adjust the income of residents and play an important role in income redistribution, Personal Income Tax is highly expected. In addition, the expense deduction standards and the tax rate schedule of wage and salary income have been adjusted recently, which has also aroused heated debate. Therefore, it’s a central issue to research on the adjusting effects of Personal Income Tax and to analyze what affect the adjusting effects. Based on the empirical analysis, this article aims to evaluate the effects of Personal Income Tax in reducing the income gap by taking Zhejiang Province and Henan Province as an example and analyze the factors that affect the effects of Personal Income Tax in adjusting urban residents’income distribution, so that we can clear how to make Personal Income Tax of our country more efficient.Firstly, taking Zhejiang Province and Henan Province as an example, this article calculates the pre-tax GINI coefficient and after-tax GINI coefficient of these two provinces from2002to2010and analyzes the redistributing effects of Personal Income Tax in these two provinces. By empirical analysis, we find that Personal Income Tax in these two provinces play an active role in adjusting the income gap of urban residents, but the adjusting effects are very weak; besides, the effect is more obvious in Zhejiang Province than in Henan Province.Secondly, the article computes and analyzes how the tax scale, average tax rate, progression, loss of tax revenue, expense deduction standards and taxation mode affect the adjusting effects of the Personal Income Tax in these two provinces from2002to2010, which aims to find out the different effects in different provinces, besides, it can help grasping the adjusting effects in the whole country.Finally, according to the empirical analysis above, we find out that there are many reasons why the adjusting effects of Personal Income Tax in our country are not obvious, such as the small tax scale, the low average tax rate, the weak progression, the unreasonable expense deduction standards, the big loss of tax revenue and the unscientific taxation mode. Only when these factors are improved totally, can Personal Income Tax play a larger role in income redistribution in our country. We also analyzes whether the modified Personal Income Tax will play a better role in income redistribution than the one before the amendment or not.